Child Safety Car seats on Business Airliners: A Demonstration of Cross-Price Elasticities

With this section, the Journal of Economic Education publishes articles, notes, and communications conveying innovations in pedagogy, hardware, materials, and methods for treating traditional subject matter. Issues relating to the way economics is taught are emphasized. PAUL GRIMES, Section Publisher

Abstract: The cross-price flexibility concept can be difп¬Ѓcult to get microeconomics pupils to grasp. The authors offer a real-life application of cross-price elasticities in policymaking. After a controversy that spanned more than a decade and included type from protection engineers, medical personnel, politicians, and those who claim to know the most about finance, the Faa (FAA) recently announced that it could not require the use of child safety car seats on commercial airliners. The FAA's analysis revealed that in the event that families were forced to purchase additional flight tickets, they might prefer to drive rather than п¬‚y, and driving signifies a far more dangerous mode of travel. Presented the fairly high cross-price elasticity between automobile travel around and air travel, the FAA concluded that the mandatory child basic safety seat plan failed to go the cost-beneп¬Ѓt testвЂ”the insurance plan would bring about a net increase in the number of fatalities. The authors assessment the FAA's decision-making method and focus on the role of monetary analysis in developing community policy. Keywords: cost-beneп¬Ѓt analysis, cross-price elasticities, public insurance plan JEL unique codes: A20, A22

The concept of a cross-price elasticity is very important in microeconomics, and the collective knowledge is that learners frequently have difп¬Ѓculty understanding and applying this concept. In addition , students usually treat cross-price elasticities as merely a theoretical concept that is certainly of limited practical worth. We take a look at the child basic safety seat (CSS) mandate pitch on industrial airplanes like a real-life case in point that illustrates the use of cross-price elasticities in policymaking. A CSS mandate would boost the price of п¬‚ying for passengers with children because seats will then have to be purchased individually for babies less than 2 yrs of age. This kind of increase in value reduces the quantity of air travel demanded and enhances the quantity of auto travel, a riskier replacement for air travel. If the substitution effectвЂ”that is, the cross-price elasticityвЂ”is sufп¬Ѓciently significant, mandatory CSS may increase the number of fatalities. Through this kind of example, we all demonstrate the fact that cross-price firmness concept isn't only an important one out of microeconomics although also a significant tool to get policy analysis. On August 25, 2005, the FEDERAL AVIATION ADMINISTRATION announced that it might not require the use of CSSs on planes. The FAA (2005) studies indicated that, if families were forced to purchase additional airline tickets, some may opt to drive rather than п¬‚y, and traveling represents a dangerous setting of travel around. In other words, provided the effective cross-price elasticities, the increase inside the price of airfare intended for families would cause them to replacement relatively risky automobile travelling for fairly safe flights. Fatalities every 100 , 000, 000 passenger mls traveled had been approximately 0. 03 for air travel and 0. ninety-seven for freeway travel throughout the period via 1995 through 20031 (Tables 1 and 2; discover also Physique 1). It truly is...